Earnings Call: Q2 2024

Jul 25, 2024

Summary

Q2 sales grew 12.8%, with same-store sales up 7.6%, gross margin at 28.3% and EBITDA margin at 10.4%. Five store openings are planned for 2024, while management cited moderating consumption and persistent competition.

Good afternoon, everyone, and welcome to La Comer's second quarter results conference call. Before we begin, I would like to remind you that the information discussed today may include forward-looking statements regarding the company's financial and operating performances. All projections are subject to risks and concerns, and actual results may differ materially. Please refer to the detailed note on page 2 of the presentation. I would like to turn the call over to Mr. Rogelio Garza, Chief Financial Officer of La Comer. Please go ahead, Rogelio. Thank you, Yolot, and thank you, everybody, for being with us today. We are going to discuss the second quarter results of La Comer. First, some of the highlights for the second quarter. We had a same-store sales growth of 7.6%, well above the rest of the market. We are growing in same-store sales very well. Our total sales growth was 12.8%. This is thank you to the good results of our new stores that are giving good results and good levels of additional sales. We have an increase in gross margin, reaching 28.3%. We maintain a healthy level of EBITDA margin of 10.4% during the quarter. If we start with the sales, we have a good comparison versus the rest of the market. We grew 7.6%. That is well above all participants in the market and much higher than that number for self-service group of stores. We had a good performance in all categories and formats and regions. All of them had positive numbers. Even if many other participants had launched summer campaigns in some ways, Temporada Naranja continues being very successful with very good acceptance in the market, even if many other players launched some kind of campaigns during the summer. But Temporada Naranja remains very well-positioned in the minds of our customers, and we are having very good results with this campaign. All the offers and the different departments that we have launched with the special offers in the campaign have had very good results, then continued to position very well in the customer. By categories, we have an increase in the categories of prepared foods. This is one of the things that has helped us to improve our gross margin that we have moving toward more differentiated products, the participation of prepared food. Additional to that, the participation of perishables has been increasing over the time, and that has helped us to differentiate our offer from other participants in the market. Our campaign from the West, Miércoles de Plaza, has been very successful, too. We have reached very good results in fruits and vegetables in that campaign, and that have helped us to continue growing in the participation of perishables as the total sales of the company. Additional by region, the northern part and the western part of the country have the highest increase. All the regions have very healthy growth, but the north and the west are the regions that have presented the highest levels of growth. As we can see here in the graph, we have maintained a good level of excess versus the market. We have been growing above the market during all the time that the company has been operating. This is the participation of e-commerce, La Comer en tu Casa, as a percentage of the total sales of the company. As you can see, the participation of La Comer en tu Casa has maintained stable, a little bit below 8% of the total sales of the company. In addition to that, we have special alliances with some aggregators, with Rappi, with Uber Eats, and we started operations with Didi some months ago. The participation of all these aggregators together is a little bit above 4%. As we have mentioned before, our objective is to continue offering to our clients very good alternatives in omni-channel, in this new channel that is the e-commerce, in order that all our customers that prefer to use that channel for their purchases can use La Comer en tu Casa or one of the aggregators in order to have this service. We continue growing at very good levels in this business. If we review the gross profit, we see a very healthy increase in prepared food and bakery. Additional to that, we have very good increase in perishables and all these categories that have, in some way, some kind of differentiation. We see the participation of these non-commodity products increasing, and this has helped us to increase our gross margin. This is the change in the mix of products that has helped us to have improvements in our gross margin. Additional to that, we continue having very good efficiencies in our logistic cost. That is a very good level. Inventory management, our shrinkages are at a very healthy level, and that has helped us to maintain this gross profit. In the long term, as we have mentioned in other occasions, for us, it's very important to have a very good relationship with suppliers, a very good win-win relationships with them, treating all the suppliers in a very fair way and trying to make some long-term relationships in a win-win situation. We believe in that good relationship with supplier that can help us to achieve good results in the long term. At the EBITDA level, we have an increase in EBITDA of 12.6%. We maintain our EBITDA margin in 10.4%. Even if we have very strong growth in sales and very good increase in gross margin, we have had some pressures in some expenses. Some of the expenses that have increased more than the sales are salaries. We have been dealing with this situation of some increases in the salaries of the people and benefits to the people for more vacations and more benefits. By law, we think that is a good thing, and we are working very hard in improving the productivity of our people. We think that that situation could continue in the future, and we should continue improving the productivity of the people. Additional to that, being very aware that we need to be very efficient with the use of labor in our company. Additional to that, we have increase in expenses in an important way in advertising and in La Comer en tu Casa. We think that it's very important that in order to be successful with our summer campaign of Temporada Naranja, we need to promote in a correct way the Temporada Naranja. That's why we have increased our amount of expenses in advertising. Additional to that, all the other players were very aggressive advertising their own summer campaigns, and that's why we decided to increase our expense in advertising. Additional to that, something that we have continue investing or spending more in is La Comer en tu Casa because we think that it's important that all our customers know that we can offer a very good alternative in e-commerce with La Comer en tu Casa. We have invested in La Comer en tu Casa in improving the features of our app and our web. Additional to that, we have improved the operations of La Comer en tu Casa, but all these improvements need additional expenses in La Comer en tu Casa. These are some of the highlights of the cumulative figures of La Comer for the first half of the year. The same-store sales growth was 9% and decrease in total sales, 15%. These numbers are above the market, and we have had a gross margin during the first half of the year of 29%, with good improvements. The EBITDA margin was 11.5%, with good growth versus the previous years. The projects during this year are 5 new stores. We continue seeing the opening of 5 new stores during this year, almost all of them during the last quarter of the year. We expect to open 3 City Market, 1 La Comer, and 1 Fresko. These projects are located in the same markets in which we already have operations. We think we have a big expectation about these new projects. In addition to that, we have started some remodeling of 2 stores in order to put our stores in a very good quality, and we think that we will have good results with the remodeling of these 2 new stores. In this area of sustainability and social responsibility, we continue using ecological friendly packaging in all our stores, in all our operations. In addition to that, we contribute with some organizations, the organization Banco de Alimentos, that is a bank of food for poor people. Un Kilo de Ayuda, Fundación Mexicana para el Desarrollo Rural, that helps with the educations in rural areas in our country. In addition to that, we contribute to Pro Bosque de Chapultepec, that is an organization in order to improve the Bosque de Chapultepec, that is one of the biggest parks in Mexico City, and it's very important for us to contribute to society in this way, to contribute in this part. I think it's all what I have prepared. I don't know if you have any additional questions or any comment that you want to. You have some doubts, you can just to put the button or ask Yolotl for that. Thank you, Rogelio. Yes, we have our first question from Rodrigo Alcántara. Yes, Rodrigo, go ahead. Hola. Hi, Yolotl, Rogelio. Quick one here, if I may. We saw yesterday Walmart's report, and we saw a turnaround and improvement in the concept of the Walmart Express. Just curious if in your case, which in the past, you used to be benefited by this situation, if you see right now the margin perhaps of increase in the competitive dynamics as a result of this potential turnaround of the other concept. Just curious if you have noticed anything about this. That would be my question. Thank you very much. I think, as I have mentioned in other occasions, we have a very competitive environment in this industry in the country. That situation has always been. It always has been in that situation. We have very strong competition from all the different participants, and the main competition for each individual store is the neighborhoods of that store, the stores that are located very close to our own store. In this specific case, we continue seeing very strong competition from all the participants, not only the one that you mentioned, but all the participants. As I mentioned, during the summer, all of them has launched very aggressive campaigns with discounts, and we need to adapt to that situation because it's something that we are used to do. It's something that it has always been that way. That's useful. Thank you very much, Rogelio. Welcome. If you have any question, please raise your hand. I think everything is very clear. Okay. I have a quick one, if I may. Yes. Go ahead, Antonio. Hi. Hi, Rogelio, Yolotl. Thanks for the fruitful question. Congrats on your results. Regarding Sumesa, you have good results there. How does that affect your plans in terms of openings and in terms of also sales mix going forward? Any update on that regarding the strategy of Sumesa? Yes. Since some months ago, we have mentioned that we are interested to start to explore the possibility to grow with Sumesa. At this moment, we do not have any specific project that I could say to you that in some months we are going to open a new Sumesa, but we think it's a very interesting way of, or a very interesting avenue of new growth for the company. We think that there is plenty of opportunity to grow with that format. It's a format that you do not require a lot of. You do not have a lot of requirements because it's a small space, and then we can have more flexibility or more possibility to grow more aggressively. At this moment, we are exploring some alternatives, but we do not have any concrete to say that we are opening a new Sumesa in the short term. I am very confident that, at least during the next year, we are going to start to grow with that format because we are analyzing some projects that could be a Sumesa, and we think it's a format that could contribute very well to the future growth of the company. Okay, perfect. Thanks. Have a nice day. You are welcome. Thank you. Also, we have a question from Consuelo Salazar. Please go ahead, Consuelo. Consuelo, you have your hand raised. Maybe she's having problem with the microphone or something. Yes, I think she has because she's putting it on and off. Hi, Consuelo. You can write your question, if you may, into the chat, and we can answer that. No? No. How do you see the consumer go? I would say that as you, I think we all have seen the same same-store sales growth in the market during the first quarter of this year and during the second quarter. I would say that we are seeing some kind of moderation in the level of growth of the consumption. Not something critical, but yes, some kind of moderation, levels that are slowly below the starting of the year. We don't know the future, but it's what we are feeling at this moment, that the consumption is, in some way, not as strong as it was at the beginning of the year. It's- Can you hear me now? Yeah. Yes, Consuelo. Yes. Do you see a difference between, let's say, a City Market format and La Comer format in terms of the purchasing power of consumers? We are seeing all our formats growing very well and City Market too. We do not see any kind of, let's say that because City Market is targeting more high-income customers, the growth is slower or something like that. We have not seen that trend. They are growing at very similar. Actually, all our formats are growing at very similar levels. In these occasions, Sumesa has the highest growth, but it is not, and Fresko a little bit, but we do not have a format that is much lower than the rest. Thank you for your insights. Thank you, Consuelo. Okay. Hi, Miguel. Please go ahead with your question. Thank you, Yolotl. Hi, Rogelio. A quick one regarding Monedero Naranja. Do you have any plans to take this instrument to the next level? What kind of level could that be? What kind of changes would you implement with that? Just curious about that. Yes, we are putting a lot of effort, and actually, we are investing a lot trying to improve the benefits of Monedero Naranja. More than 50% of our sales, in some ways, present some kind of Monedero Naranja, then we have a good level of information of our customers because of that. And many of the benefits that we give to our customers are in the form of Monedero Naranja. By the way, at this moment, we have, in Temporada Naranja, we have a 20% offer in all medicines and pharmacy. That is going to the Monedero Naranja, is an offer from Temporada Naranja that is completely linked to the Monedero Naranja. Then, yes, we are improving that every time we have more participation of our customers with Monedero Naranja. And the idea is to improve the benefits that we give to our customers in that instrument, that loyalty program. Thanks, Rogelio. You are welcome. Well, we do not have more questions in the queue. Anyone? Any other question? I think so. At this time, there are no questions. Please, Rogelio, proceed to closing remarks. Thank you, everybody, for your participation in the conference call. If you have any additional questions, please reach Yolotl. Thank you. Thank you, everyone, for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.